Mismanagement of Community Assets and the Duty of Full Disclosure Upon Request

Mismanagement of community assets by one spouse alone, entitles the other to reimbursement and an accounting. The other spouse can enforce this remedy even during marriage under Family Code § 1101.


      Family Code § 1101 addresses the problem of mismanagement of community property assets during marriage by setting interspousal disclosure and accounting rules. The spouse who has the primary management and control of a community business “may act alone in all transactions, but shall give prior written notice to the other spouse of any sale, lease, exchange, encumbrance or other disposition of all or substantially all of the personal property used in the operation of the business”.


Insofar as the duty to act in good faith, the managing spouse has the duty to make full disclosure, upon request, of community property assets and liabilities. Family Code, section 1101(a) provides a remedy during marriage “for breach of the duty imposed by Family Code §§ 1100 or 1102 that results in a substantial impairment to the claimant spouse's present undivided one-half interest in the community estate”. An action under 1101(a) may be brought without filing a petition for dissolution, legal separation, or nullity, but must be brought during marriage “within three years of the date a petitioning spouse had actual knowledge that the transaction or event for which the remedy is being sought occurred” An action may also be brought in conjunction with a dissolution, legal separation, or nullity proceeding, or upon the death of a spouse.

The duty of good faith dealings, with accompanying obligations of accounting and disclosure, continue after separation until the marital property is finally divided. Family Code § 1100(d).

With few exceptions, in transactions between themselves, a husband and wife are subject to the general rules governing fiduciary relationships which control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in Sections 16403, 16404, and 16503 of the Corporations Code, including, but not limited to, the following:


(1) Providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspection and copying.


(2) Rendering upon request, true and full information of all things affecting any transaction which concerns the community property. Nothing in this section is intended to impose a duty for either spouse to keep detailed books and records of community property transactions.


(3) Accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse which concerns the community property.

See Family Code, sections 720-721.



 

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